Optimizing Your PPC

This chapter teaches you about the metrics used in evaluating campaigns, how to set goals for your campaigns, and how to optimize bids and keywords to hit those goals.

How to Optimize a Campaign

Metrics

Basic Number Metrics

Spend: The amount of money on clicks on your ads during the time frame selected

Sales: The product sales from orders within 7 days of a click on an ad if that click was made during the time frame scheduled.

Becaues there is a delay between when buyers click and buy, Amazon delays reporting this metric by one to two days and refreshes the data for the next seven days.

Impressions: The number of times Amazon shoppers saw your ad during the time frame selected, whether they clicked or not.

Clicks: How many times users clicked on your ads during the time frame selected

Orders: The number of orders made by users after clicking your ad. Orders are counted if purchase is made within 7 days of the ad click.

Because there is a delay between when buyers click and buy, Amazon delays reporting this metric by one to two days and refreshes the data for the next seven days.

Ratio Metrics

ACoS (Advertising Cost of Sales): Spend divided by Sales. You can look at this as how much you have to spend on ads per sale. This is the most important metric.

CTR (Click Through Rate) The number of clicks divided by the number of impressions.

Conversion Rate: Orders divided by Clicks. What percentage of people who clicked your ad actually purchased the product?

CPC (Cost per Click): Spend divided by Clicks.

Viewing Your Metrics

There are a few ways to view your Sponsored Products data in Seller Central.

Naturally, our recommendation is to use the free Prestozon Analytics Tool, which lets you pick any timeframe starting 60 days before you signed up and to see performance over time of any metric. You can sort all of your keywords and search terms to see which are profitable or not. for more detail, go to the Reports tab in Prestozon and you can download reports that show how every search term that triggered each keyword performed on every day.

You can also find most of this data in the Seller Central interface. In Advertising > Campaign manager you can see your metrics at the campaign, ad group, and keyword levels. These numbers are aggregated of the time period you select.

In Reports > Advertising Reports you have six options. The two most important are the Search Term Report and the Campaign Performance Report.

The Search Term Report gives you metrics for each search term that your ads have been shown for over the last 60 days. This is the only time frame available, so if you’ve made changes to your keywords, bids, or listing over that time it’s hard to know the impact of the change, (though this information is available via the Amazon API in Prestozon Analytics, under Reports.)

The Campaign Performance Report shows you performance for each keyword in your campaigns per day over the last 60 days. This is useful for understanding how a campaign or keyword’s performance has shifted over time but not useful for understanding at the search term level.

Setting Goals for a Campaign

Before you can optimize an ad campaign you need to know what your target is. There are many ways to set a goal for a campaign and it usually comes down to whether you want to boost your ranking or to increase your profit. Let’s examine the different approaches for each goal. First, two profit objectives and then one objective for simple sales volume.

Objective #1 - Optimizing for Profit Per Sale

If your product is already generating organic sales and you want to increase your profits through higher sales volume, bringing ACoS down is a good target. Campaigns for this type of product should have an ACoS that is absolutely no higher than your profit margin.

Here’s the math for a hypothetical product that costs $25 on Amazon:

Sale Price

$25.00

FBA Fees

$4.00

Referral fees

$3.75

Product cost (COGS)

$10.00

Proceeds from sale

$17.25

Profit

$7.25

Profit Margin

29%

This is where ACoS comes in handy. If your ACoS is lower than 29% (say, 24%) then you made money on each sale. If it’s above (say 35%), then you lost money selling that product. Obviously the further below 29% the ACoS is, the more money you make.

So if you’re optimizing for profit per sale you’ll want your ACoS to be as low as possible. Keep making adjustments and tracking the outcomes to lower the ACoS over time.

Objective #2 - Optimizing for Total Profit

If your ACoS is 2% but you only sold one unit, then you certainly you had a high profit percentage on that one sale but you’re not getting much overall benefit out of your campaigns.

If you increase the bids and the ACoS goes to 10% but you sold 20 units, you will have made more money.

Start by getting the campaign’s ACoS below your profit margin and slowly stepping it down every few days until sales start decreasing.

Objective #3 - Optimizing for Number of Orders

If you are using Sponsored Products to boost a product’s ranking, focus on orders. Decide on the most money you can spend per sale and focus your spend on keywords that generate sales, even if it’s at an ACoS above your profit margin.

Another reason you may want to focus on orders if if you have too much inventory in stock and you just want it off your hands for whatever reason.

Keep an eye on CTR

Remember when we were talking about the auction? Amazon takes two things into account when deciding the final auction rank: the bid and the likelihood that the customer will click on the ad. To give your ads the best chance showing at the top of page one, keep the overall click-through rate (CTR) of each campaign high. Do this by only keeping keywords with a high CTR in your main campaigns.

When to Make Bid Adjustments - Be Patient

It’s exciting to make adjustments to your Sponsored Products campaigns, especially when you’re anticipating that the changes will make you money. But don’t jump the gun. Patience is a key to success with ads. Wait until you have enough data to make decisions.

Below are some ways to know when you have enough information.

Impressions and Clicks (CTR)

The first pieces of information to become available about an ad are the number of impressions and clicks, so let’s look at how to use those.

The lowest CTR you will likely see on a successful keyword is 0.15% so if a keyword has lower than 0.15% CTR, consider pausing it.

How soon can you know if a keyword will have a CTR above 0.15%? At a CTR of 0.15% the first click might take as long as 1 out of 670 impressions (0.15%) to happen. (Of course, statistically speaking, that one click might happen earlier.)

Higher performance keywords may have a CTR around 0.5%, where you’d expect one out of 200 impressions (0.5%).

Since there isn’t much of a cost to waiting for one more click and that one extra click would double the precision of the calculations you should wait until you would expect to see two clicks.

To summarize: Never make a decision on a keyword that has fewer than 1300 impressions. If after 1300 impressions a keyword has 1 or 0 clicks, consider pausing it so that your campaign’s overall CTR doesn’t take a hit. If it has 2 or more clicks, keep it running and keep an eye on it.

Conversion Rate

If a keyword meets your CTR threshold, next you can look at conversion rate. This is the number of orders per click.

Wait until you can expect to see a sale based on historical sales rates. Look at the table below to see how many clicks you need before you are likely to see a sale at your conversion rate. We show you conversion rates between 1% and 10%.

Conversion Rate

Clicks to first sale

1%

100

2%

50

3%

33

4%

25

5%

20

6%

17

7%

14

8%

13

9%

11

10%

10

Sale Price & Cost Per Click

The relation between sale price and average CPC also needs to be taken into consideration. If you are selling a $25 item and want to keep your ACoS below 30%, then you can only afford so many clicks per sale.

How many clicks? This table below provides a handy reference.

CPC

Clicks per sale

Required conversion rate

$0.25

30

3%

$0.50

15

7%

$0.75

10

10%

$1.00

7

14%

$1.25

6

17%

$1.50

5

20%

$2.00

3

33%

$3.00

2

50%

$4.00

1

100%

$5.00

1

100%

$6.00

1

100%

This also illustrates why it is hard to compete in the Sponsored Products arena for low sale-price, high-competition product niches. You might need a 30% conversion rate to make any money! For those tough situations, the goal that makes the most sense is to boost your organic ranking via other methods (giveaways, affiliates, other outside traffic) since it is unlikely that a sponsored products campaign will be profitable.

Making Bid Adjustments

So now that you have set your goal and have some data, what should you do?

There are three actions you can take:

Increase your bid

Decrease your bid

Leave your bid alone

If a keyword is performing below your ACOS target, you can either leave it alone or increase your bid to reach more people.

You can easily calculate the maximum you should increase your bid to if you assume that your conversion rate stays the same.

Once you have the maximum, increase the bid slowly, perhaps 10% increase each time. You want to find the lowest bid that achieves your targets.

Of course, don’t bid above your calculated maximum. The goal here is to find the sweet spot where you get the most profit. This sweet spot is a balance between a low bid and high impressions (which turn into sales).

If you assume a constant conversion rate it’s easy to calculate the maximum CPC for a keyword that will keep you in your target ACoS range

If a keyword is performing above your ACOS target, you need to decrease the bid.

You can use the same formula above to find your target bid.

If the target bid is far lower than your current CPC, you might want to break it into several steps to get there. For example, if your current CPC is $1.50 and your target CPC is $1, try moving your bid to $1.25 and seeing how that does before making another adjustment.

Moving too low may cause amazon to stop showing your ad at all. Stepping down gives you the best chance to make a keyword profitable.

If you get all the way to your target bid and the ACOS is still too high or the impressions have gone to 0, it’s time to pause the keyword.

Pausing with $0.05 bid

A handy trick if you think a keyword has promise (maybe it has a decent CTR but not a lot of sales) but for which you just can’t seem to hit your ACOS target is to reduce the bid to $0.05. At this price Amazon won’t give you a lot of impressions, but once in awhile you might get a click and who would turn down a $0.05 click?

Conclusion

Thanks for reading! We’re constantly updating this guide as people ask us questions or Amazon’s algorithm changes. So please let us know if anything was confusing or went unanswered at team@prestozon.com.